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Health Insurance, the Social Welfare System and Household Saving

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  • Hsu, Minchung

Abstract

This paper studies the factors that can generate the puzzling saving phenomenon in the US: 1) Starr-McCluer (1996) finds that households covered by private health insurance save more than comparable households without coverage, even when controlling for other variables. 2) The asset holding ratio of the insured to the uninsured decreases with increased income level. This paper suggests that institutional factors, in particular, a means-tested social welfare system and an employmentbased health insurance system, can account for the phenomenon. I develop a dynamic equilibrium model, and show that the model economy presents the same saving pattern as in the US and that the empirical finding as in Starr-McCluer (1996) is replicated. Implications for empirical approaches to testing the precautionary saving hypothesis are also provided.

Suggested Citation

  • Hsu, Minchung, 2008. "Health Insurance, the Social Welfare System and Household Saving," MPRA Paper 21281, University Library of Munich, Germany, revised 2010.
  • Handle: RePEc:pra:mprapa:21281
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    File URL: https://mpra.ub.uni-muenchen.de/21281/1/MPRA_paper_21281.pdf
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    References listed on IDEAS

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    1. Hubbard, R Glenn & Skinner, Jonathan & Zeldes, Stephen P, 1995. "Precautionary Saving and Social Insurance," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 360-399, April.
    2. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November.
    3. Starr-McCluer, Martha, 1996. "Health Insurance and Precautionary Savings," American Economic Review, American Economic Association, vol. 86(1), pages 285-295, March.
    4. Guariglia, Alessandra & Rossi, Mariacristina, 2004. "Private medical insurance and saving: evidence from the British Household Panel Survey," Journal of Health Economics, Elsevier, vol. 23(4), pages 761-783, July.
    5. Jonathan Gruber & Aaron Yelowitz, 1999. "Public Health Insurance and Private Savings," Journal of Political Economy, University of Chicago Press, vol. 107(6), pages 1249-1274, December.
    6. McGarry, Kathleen, 2002. "Public Policy and the U.S. Health Insurance Market: Direct and Indirect Provision of Insurance," National Tax Journal, National Tax Association;National Tax Journal, vol. 55(4), pages 789-827, December.
    7. Katherine Swartz, 2003. "Reinsuring Risk to Increase Access to Health Insurance," American Economic Review, American Economic Association, vol. 93(2), pages 283-287, May.
    8. Alex Maynard & Jiaping Qiu, 2009. "Public insurance and private savings: who is affected and by how much?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 24(2), pages 282-308, March.
    9. Feenberg, Daniel & Skinner, Jonathan, 1994. "The Risk and Duration of Catastrophic Health Care Expenditures," The Review of Economics and Statistics, MIT Press, vol. 76(4), pages 633-647, November.
    10. S. Rao Aiyagari, 1994. "Uninsured Idiosyncratic Risk and Aggregate Saving," The Quarterly Journal of Economics, Oxford University Press, vol. 109(3), pages 659-684.
    11. Mariacristina De Nardi & Eric French & John Bailey Jones, 2005. "Differential mortality, uncertain medical expenses, and the saving of elderly singles," Working Paper Series WP-05-13, Federal Reserve Bank of Chicago.
    12. Chou, Shin-Yi & Liu, Jin-Tan & Hammitt, James K., 2003. "National Health Insurance and precautionary saving: evidence from Taiwan," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 1873-1894, September.
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    Cited by:

    1. Pashchenko, Svetlana & Porapakkarm, Ponpoje, 2015. "Welfare costs of reclassification risk in the health insurance market," Journal of Macroeconomics, Elsevier, vol. 45(C), pages 21-44.

    More about this item

    Keywords

    Precautionary Saving; Means-tested Social Welfare; Employment-based Health Insurance.;

    JEL classification:

    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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